• OIG Gives Green Light to Gainsharing
  • March 8, 2005 | Author: Nora L. Liggett
  • Law Firm: Waller Lansden Dortch & Davis, LLP - Nashville Office
  • In a rapid succession of advisory opinions posted in February 2005, the Health and Human Services Office of the Inspector General (OIG) approved several gainsharing arrangements between hospitals and cardiologists.

    These opinions follow closely on the heels of the OIG's Supplemental Compliance Program Guidance for Hospitals (released January 2005), in which the OIG cautioned against overly broad gainsharing arrangements. Despite the Compliance Program Guidance's strong language, the recent advisory opinions indicate that the OIG is not categorically opposed to all gainsharing.

    While there is no fixed definition of "gainsharing," the term typically refers to an arrangement in which a hospital gives participating physicians a share of reductions in the hospital's patient care costs attributable to the physicians' efforts. Hospitals are under significant financial pressure to reduce costs, in part because of the effect of managed care and the Medicare Part A system of hospital reimbursement. However, because third party payors pay physicians separately, physicians do not have the same incentive to save hospital costs. Gainsharing arrangements are designed to align physician incentives with those of hospitals by offering physicians a portion of the hospital's savings in exchange for the physicians' efforts to implement cost saving strategies.

    Gainsharing gained popularity in the 1990s until the OIG released a 1999 Special Advisory Bulletin warning hospitals to unwind these programs. The 1999 Bulletin alerted hospitals to a commonly overlooked provision of the Civil Monetary Penalties Statute that makes it illegal for a hospital to make payments directly or indirectly to a physician to reduce or limit items or services to Medicaid or Medicare patients. The 1999 Bulletin concluded that hospitals should wait for legislative revision before adopting gainsharing programs.

    The recent advisory opinions (Opinion Nos. 05-01, 05-02, 05-03 and 05-04) indicate that the OIG has backed away from that prior position.

    The facts are similar in each opinion. In each, a hospital conducted a study of the historic practices at its cardiac surgery or cardiology departments and identified major categories of cost savings, including: 1) opening packaged items only as needed; 2) performing blood cross matching only as needed; 3) substituting less costly items, and 4) product standardization of certain devices. Each hospital proposed a gainsharing arrangement in which it would share with the physicians a percentage of the savings arising from implementation of the measures identified in the study.

    The OIG noted that the proposed arrangements would technically violate the Civil Monetary Penalties Statute. Nevertheless, the OIG approved the proposals, in part because of the presence of the following safeguards:

    • Limited Duration and Amount. The financial incentives would be reasonably limited in duration and amount. For example, each proposal is limited to one year. Payments to the physician groups would be 50% of the difference between the group's adjusted current year costs and its base year costs, with the aggregate physician payments limited to a maximum cap of 50% of the projected cost savings identified in the study.
    • Specific Cost Saving Identified. Each proposal clearly and separately identified specific cost saving actions and resulting savings.
    • No Adverse Effect on Patient Care. The requestors offered credible medical support that the cost-saving measures would not adversely affect patient care.
    • All Payor Application. The gainsharing payments would not be limited to procedures reimbursed by Medicare, but instead would be based on all applicable categories of procedures, regardless of payor.
    • Baseline Thresholds Established. The arrangements would protect against inappropriate reductions in services by using objective historical and clinical measures to establish baseline thresholds beyond which no savings would accrue to the physicians. For example, one of the proposed programs provided that, if the volume of Medicare reimbursed procedures in the current year exceeds the volume of similar Medicare reimbursed procedures in the base year, there would be no sharing of cost savings for the additional procedures.
    • No Diminution in Product Choice. While product standardization would be encouraged, physicians would make a patient-by-patient determination and choose the most appropriate cardiac device from among the same selection of devices as before.
    • Written Disclosures. The hospital and the physician groups would provide written patient disclosures describing the arrangement.
    • No Inappropriate "Steering". A hospital committee would monitor the case severity, ages and payors of the affected patients to ensure that participating doctors are not steering costly patients to other hospitals. If a physician's case mix shows a significant change from historical measures, the physician would be terminated from the program.
    • No Shifting of Cost Savings. Cost savings would be calculated separately for each recommendation, which would preclude shifting of cost savings and assure that the savings generated by utilization beyond a set target would not be credited to the physician group.

    Although advisory opinions can only be relied upon by the parties to the opinion, these recent opinions offer a blueprint of what safeguards the OIG will require before approving a gainsharing program. The OIG's willingness to grant favorable advisory opinions in this area is a welcome retreat from its historical position. Hospitals and physicians should have greater flexibility in the future to implement cost saving measures and develop efficiencies that will provide benefits for all involved in the healthcare delivery process-hospitals, physicians, patients and payors.